Explaining Three Year Tenancies

Explaining Three Year Tenancies

The government have placed 3-year minimum term tenancies at the forefront of their plans to make the private rented sector more secure for tenants.

Under a 3-year agreement, with a 6-month break clause, tenants would be able to leave before the end of the minimum term but would have greater protection if they wanted to stay in a property for an extended period of time. Aiming to help renters put down roots, and give landlords longer term financial security.

Approximately 80% of tenancies in England and Wales are set at 6 or 12 months, with the assured shorthold tenancy a foundation of the buy-to-let industry. People on average stay in the same property for 4-years, while a MakeUrMove study highlighted that 43% of private renters had spent more than 5-years in their current accommodation.

Some landlords reacted negatively to the government’s ideas to change the private rented sector, arguing that current legislation is vital for an equal relationship with their tenants. Research by the National Landlords Association (NLA) found that 40% of tenants are for longer tenancies, but 40% are against. Around 50% said they were happy with current lengths of tenancy.

The Housing Act 1988 introduced assured shorthold tenancies to persuade landlords of the benefits of renting a property and including a simple route to possession. When the legislation was introduced, the private rented sector accounted for a historically low proportion of households. In 1996-97, 10% of all UK households lived in the private rented sector, a proportion that didn’t change dramatically until after 2006-7.

Currently 20% of UK households live in the private rented sector, a proportion which is expected to continue to rise. By 2021, it’s forecast that a quarter of households will be in private rented accommodation. As more people across all age groups rent, legislation must evolve to adapt to people’s changing lifestyles.

Less than 2-years ago, Scotland introduced changes to its private rented sector that could act as a model for the wider UK, including: an end to fixed term tenancies (effectively making them open-ended); simpler notices, longer notice periods, tribunal measures to address tenants failing to vacate, and new grounds on which landlords can ask tenants to leave.

Reform to the private rented sector has support from the majority of landlords. Shelter’s 2016 report found that across the UK two thirds of landlords saw the appeal of longer tenancies, with 37% in favour and 39% requiring more information.

As to what that information could address, a survey of landlords by The Property Hub found that 82% of landlords would accept longer tenancies if there was a quicker way to remove tenants who fell into arrears. A majority of 69% said they would need the ability to increase rents over the tenancy, and 59% were in favour of tax incentives. Less than 9% said they would oppose longer tenancies regardless.

With the number of renters rising year-on-year, legislation must change to remain fit for purpose and meet demands of the market. In 2017, build-to-rent complexes adopted 3-year agreements as standard, and to continue to thrive the wider private rented sector must also.

3-year tenancies would make private rented accommodation even more attractive to potential tenants, increasing demand. There are numerous benefits of long-term tenancies for both tenants and landlords, counting security for the former and reliable income for the latter. But the government must address the concerns of landlords to make reforms a success.